Most CFOs play a key role in sustaining a company’s performance over time, whether in planning strategy, allocating resources, or setting and monitoring performance targets. The best among them do so with an independence deeply rooted in a connection with the outside world, the markets, and leaders across the company—lest they be so wedded to one business or the person running it that they are unable to be objective when it comes to challenging metrics, evaluating growth plans, or cutting and adding to businesses.
McKinsey’s Jean-Hugues Monier explored this challenge with Steve Weiner, senior vice president and group treasurer at Unilever, and Brian Worrell, vice president of corporate financial planning and analysis at General Electric, at McKinsey’s annual CFO Forum in London in June. They emphasized the importance of talking directly to customers to find out what they need—as well as keeping business-unit objectives aligned with those of the entire company.
McKinsey: We’ve been hearing a lot about change to the global business paradigm—a shift toward growing urban centers in emerging markets, the competitive market for talent in those areas, and the promise and perils of big data. Brian, talk about that kind of change, at the day-to-day level, facing the CFO. How do you keep things on track?
Brian Worrell biography
Brian Worrell: I find the better CFOs do have a pretty good split at spending time internally versus externally—and I myself am very deliberate about it. At GE, we have eight different businesses, so there is a lot to stay on top of. To help with that, we’ve built a team that can take care of a lot of the internal things, especially when it comes to reporting and analysis. That helps to alert me when some of those basic operating measures are getting out of acceptable ranges so I can focus on them.
It also helps me spend more time outside the company. I spend a lot of time with rating agencies and getting investor perspectives, and more important, when I was the CFO of a division, I spent a lot of time with customers. Being able to understand what customers are thinking, how they are viewing you, and how they are viewing the world gives you some unique insights.
McKinsey: It’s interesting that you mention spending time with customers. How open are they to really sitting down and talking about value and performance?
Brian Worrell: Customers are often happy to talk about what’s going on with their businesses and their industries. So I work with the business-unit CEOs and sales leaders to decide which customers we should approach—some we’re serving well and others we’re not.
Of course, you can’t just show up at the customer’s door and say “Hi, I’m here.” There needs to be a specific reason. For example, I have some history with several health-care customers from my time in that business. So I’m going out next month with the CEO of our health-care business and the sales leader in the Americas to spend half a day with a hospital system. They’re going to sell things, but I’m going to work with the customer on some of the broader topics they’ve been asked to discuss. It should be a great opportunity to exchange ideas. Another example is in our transportation business. We started looking at the disconnect between how we think we provide value to a customer and how the customer thinks we drive value. That was a great opportunity for the CFO to go in as a finance person and help facilitate and bridge some of that conversation with the sales team.
McKinsey: Steve, did you have a similar experience?
Steve Weiner biography
Steve Weiner: Absolutely. I was CFO of Unilever Mexico some years ago, and we were losing ground in almost every category. When I talked to customers to explore why that was, I learned the answer wasn’t about our brand plans or our marketing plans, it was just basic day-to-day execution. We were losing at simple execution: getting products on shelves, on time, executing promotions, clearing deductions—the basics of our industry. So I walked into the boardroom and announced that I didn’t want to hear about gross margin for at least six months. Instead, I said I wanted to hear about customers’ orders filled on time, deduction clearing, and those sorts of things. It took some people by surprise because I wasn’t usually the one focused on operational metrics. That episode formed a nice bond among the heads of customer development, brand building, and supply chain; they were desperate for the organization to make real step-change improvements in operations that quickly translate into margin and revenue improvements. This focus on execution motivated the workforce and enabled us to turn the business around to the point that we started winning market share and growing the business. The enhanced credibility with our customers enabled us to jointly identify waste areas and ultimately increase our margins.
McKinsey: Brian mentioned keeping track of eight different businesses. How do you keep businesses at Unilever on track to achieve performance goals?
Steve Weiner: We try to keep the business-unit strategy-review process as simple as possible. We have the heads of each business articulate their five- to ten-year growth model in three or four simple metrics—essentially our financial-growth model. Then we test that against the market dynamics and against our competitors to see if those growth aspirations make sense. With that as a benchmark, we can start assessing whether their plans also make sense. And even then, all too often—particularly in consumer products—managers fall in love with this innovation or that acquisition and before long, they’ve strayed from the plan.
So the challenge then becomes how do we get the business leaders to understand what we’re trying to do? How do we communicate the difference between growing a personal-care business and growing a mayonnaise business so that growth is just a common part of our vocabulary—and everything else, whether new products or acquisitions, is just part of the growth plan? Resource allocation is our job. We’re here to make sure the business allocates funds to investments that support the overall growth model of the business.
Brian Worrell: On that point, we’re undergoing some process changes at GE right now. Historically, we would have a big strategy session in June or July where the heads of different segments would come in and we would spend as much as a day and a half with them reviewing strategy and going through three to ten years of product-development and financial projections. But since the pace of change has accelerated, we’ve replaced those big long sessions with smaller ones, where we get people together from several businesses to talk about what’s going on in the markets, what’s going on in the business, and the implications for overall strategy.
To make this more effective, we’ve also supplemented what used to be very detailed functional operating reviews of the current quarter, the market, and R&D, with a higher-level update of two or three key strategy topics. That lets us decide whether the topics are still relevant or whether we need to pivot, because we examine whether the market-back data we get are validating our strategy or telling us we need to do something differently. Finally, where we used to have these huge human-resources sessions to go through things like succession planning and organizational development, we have turned that process into more of a real-time discussion of questions: Are we working on the right things? Is the strategy the right strategy? Are we compensating executives and tracking the right metrics to drive the behavior we want? And we’ve added that discussion to our quarterly strategy sessions to give us a more integrated view. We are still in our first year with these changes, but so far I would say it’s been very helpful, and we’re becoming more agile and responsive.
McKinsey: That suggests a talent component to keeping businesses on track. Has your approach to talent management in finance addressed this?
Steve Weiner: Driving our talent strategy is absolutely critical, both for developing our people across the finance function and also for attracting great people to work for us from outside the business.
Historically, a lot of our talent strategy was really just a microlevel kind of succession planning—putting the right person in the right job one individual at a time. A few years ago, we realized that only 1 percent of our senior finance people were being hired from outside—which just wasn’t healthy. It forced us to reflect and think differently about how we hire people, and today that number is significantly lower. We’re also trying to address a couple of key areas that need specific attention—one is ensuring that we attract, retain, and develop great people in emerging markets, where so much of our growth is. Another is ensuring that we have a better gender balance, by attracting talented women to the organization at middle- and senior-management levels.
Brian Worrell: We’ve wrestled with the same challenges. We used to hire good people, they’d stay a few years, and then someone would hire them away. So we started hiring people who were bigger than the jobs we had for them so they could explore the company—we could broaden their experience, for example, bringing them into the developed market or another emerging market, and then sending them back. We also found that it’s essential to give people a path—let them see where they stand in the organization and where they can go: Is there a path to a different level or to another job or do we value their deep domain expertise in treasury or tax and that’s where they are going to stay? When we do that, good people aren’t out there looking for that next role because they aren’t worried—they can see their way to bigger things.
McKinsey: Steve, how do you tailor what each unit is doing to its circumstances, while allowing it to still do its part to meet the top-down objectives for the entire company? I would imagine it’s quite difficult.
Steve Weiner: That’s one of the most important jobs we have. It’s easy to just say, “OK, each unit has to do revenue growth and profit growth, a little bit of cash generation, and off you go.” But the real value for the finance function is to decide how we get there—setting the right metrics for each unit. That’s why we have operational leaders in each of our different units.
So the role of our business-unit strategy sessions is to identify the two or three additional metrics that you, as CFO, want to drive each year so that there is some consistency across units as well. For example, when I was controller of the Americas, we determined that on-time order fulfillment was a key reason customers were running out of stock on the shelf—which means if a customer wanted an order to show up in its depot on Thursday morning, the order wasn’t getting there until later. So we tracked that metric throughout the Americas for two years. We improved on-time fulfillment rates from 70 percent to above 90 percent, which is the industry standard. Then we stopped using that metric and moved on to another one.
Clearly, in our business, the day-to-day management of promotions and promotional intensity is also a big part of our value vision. And although the CFO has traditionally been viewed as the king of “little data,” we’re quickly facing the demands of big data as well. For example, there was nothing more shocking than going to see customers and having them tell us how much money we’re wasting on promotions. That was a big wake-up call for us. So we are quite a bit more advanced now in understanding how we use our point-of-sale data, particularly in the developed world, to interact with our customers so we can adapt the promotional intensity to the right level.
McKinsey: Brian, you’ve probably had the same kinds of experiences?
Brian Worrell: Yes. In our transportation business we measure failures per locomotive year. At one point, the number of failures was way down, but service costs and profitability weren’t keeping up. It was the finance team that went in and challenged this internal metric that had been used for a number of years. When we looked at it closely, we found that while the failures-per-locomotive-year metric was important, it was high level enough that it could hide a lot of things.
The hardest thing to do is to look at metrics from a customer point of view and really push teams to understand what the customer is feeling and how that drives value and profitability and returns. That’s not something you can do across the whole company, at least at my level. But we can get teams to do it when we see our bread-and-butter indicators start to go out of line.
McKinsey: And do you take a similar approach to keeping M&A on track?
Steve Weiner: My previous job at Unilever was as CFO of its brand-development groups for its 11 product categories, and we didn’t even allow them to talk about M&A until they talked about their overall growth strategy. That meant starting with how they were going to run their business model over the course of three or five years and how much of that is going to be organic. It’s not unusual for people to suddenly plug in an M&A idea when they run out of organic ideas—because sometimes it’s easier and of course it creates a lot of change, even if it creates a lot of risk in your balance sheet.
How did we manage those conversations? One way is to use the board to ask each of the category teams to bring a portfolio of its M&A ideas, even if many of them are just the beginnings of an idea. By the time we actually get to an acquisition proposal, the senior team understands how it will fit into our overall strategy for that category and/or country.
Brian Worrell: The easy stuff in M&A work is what we all can do: test the model, confirm the assumptions, go through the details, and push back on the synergies. But one of the things that I found most critical in this role is making sure you look at things objectively without any input from the deal team. Having bought so many companies, I know I’ve fallen in love with companies and tried to fit them into our growth plans. But then I’d have to ask, what’s the profit pool in the market or the segment of the market that we’d be going after, and more important, what would the trend on returns be? It’s absolutely critical for finance to challenge teams on their overall market assumptions.
